Consider impact of tax abatements

Brothers John and Billy McQueary have applied for Chapter 100 tax abatement for their redevelopment of the Vandivort Building.

In the past months, the Springfield City Council has granted tax abatements to Kraft Foods for equipment purchases, Solo Cup because it is "blighted," and now the council is considering doing the same for the developers of the Vandivort Building.

These are only recent examples of a variety of tax incentives offered by the city to encourage economic development.

Each of these situations is unique and each deserves support, but the results also mean that for decades to come the city will not receive taxes on that property. There is a balance that has not received much discussion.

Last year, the council passed an economic development incentives policy that outlined four vehicles by which a project could receive property tax abatement - Chapters 99, 100 and 353, as well as the Enhanced Enterprise Zone.

In 2011, the council granted Chapter 99 abatement - Land Clearance for Redevelopment Authority - on 37 properties, most downtown. The abatement covers 100 percent of the increase in assessed valuation on land and improvements for 10 years.

Kraft received a tax cut of 50 percent over the next 25 years on $26 million of equipment upgrades through Chapter 100, which allows the tax breaks if a project will attract or retain jobs. While the upgrades, which actually totaled more like $55 million, will not create new jobs, Kraft argued that they would allow the Springfield plant to retain jobs.

In 2008, BKD received Chapter 100 financing for its new downtown office building.

The council is now considering giving Chapter 100 abatement on the Vandivort project, developed by MBH LLC. The project would turn the former Masonic temple into a downtown boutique hotel. The building most recently housed offices, a ballroom and a small theater. The incentive plan would allow for a 100 percent tax abatement for 10 years, followed by a 50 percent abatement for 15 years. The Vandivort received Chapter 353 tax abatement as part of an earlier redevelopment.

Chapter 353 allows up to 100 percent tax abatement for up to 25 years when redeveloping blighted property. The city determined that the Vandivort no longer qualifies as blighted, so Chapter 100 was the only option available.

The Solo Cup building, which is vacant, was found to be blighted "by reasons of age or obsolescence." Redeveloping the property under Chapter 353, the developer will pay no additional property taxes for 10 years, then 50 percent of the higher rate for the next 15 years.

Enhanced Enterprise Zones allow up to 10 years of 100 percent tax abatement on new construction for businesses. The city has four Enhanced Enterprise Zones, which encompass pretty much the whole city. To qualify for the tax break, the qualified business must invest at least $100,000 in a new or expanded facility and create at least two new jobs.

These are all valuable ways of encouraging business development and job creation, but what the businesses save, the city loses. In turn, school districts, libraries, fire districts and other services also lose out on those tax dollars.

News-Leader reporter Amos Bridges reviewed those costs in an article a year ago, showing that last year the cost to the city and all those services totaled $2.4 million. While that only represented 1.7 percent of the total property tax collected, it is no small number.

Former Missouri legislator Mike Schilling of Springfield called it "corporate welfare" when he argued against the Kraft tax incentive before the City Council this summer.

It is important for the city to encourage economic development, and we applaud the work done by the city in 2011 to create its Economic Development Incentives Policy Manual to guide the city's efforts.

But it is also important to carefully consider the impact on the services those property taxes support.

We are not opposing the Vandivort project. In fact, we would support a downtown boutique hotel.

When the council heard the latest proposal regarding the Vandivort earlier this month, there were a few questions asked regarding the decision to seek Chapter 100 instead of 353, what would happen if the developer defaults, how it would affect a new owner and whether the building elevator would be replaced.

Those are all good questions, but we believe the City Council should be sure to carefully review a financial accounting as part of its due diligence when considering such tax incentive requests. There should be an estimate of the cost to the city over the life of the abatement, and the council should also know the total cost of all new and continuing tax incentives each year before considering adding to that total.

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

Email this article

Consider impact of tax abatements

In the past months, the Springfield City Council has granted tax abatements to Kraft Foods for equipment purchases, Solo Cup because it is 'blighted,' and now the council is considering doing the